Mozambique’s debt

02 May 2018

Africa

Delivering Growth and Opportunity

Africa Riskwatch - Issue 11 - May 2018

Mozambique’s debt

When it became public in 2013 that three state-owned companies had accumulated massive debts, Mozambique went into crisis mode. Since then, the country has been struggling with emerging from it. One reason for this is the government’s lack of cooperation when it comes to conducting proper investigations into potential criminality in the issuing and spending of the state-guaranteed debts. But let’s start from the beginning:

About the crisis

Mozambique’s debt crisis began in 2013 and relates to around USD 2bn state-guaranteed debts accumulated by three state-owned companies: EMATUM, Pro-Indicus and Mozambique Asset Management (MAM). All three debts were issued in 2013, though the Pro-Indicus and MAM debts only became public in 2016. Back then, concerns had immediately been raised over whether the process of issuing these debts was legal and how these debts were spent. An audit demanded by the IMF revealed that USD 500m of the debt was unaccounted for, and that there was a further discrepancy of around USD 713m between the prices the state-owned companies paid for goods and services, and the value of those goods and services as estimated by an independent expert.

Resumption of support?

The IMF and bilateral donors suspended direct budgetary support in response to revelations of the Pro-Indicus and MAM debts, and set a number of conditions for Mozambique to fulfil before considering a resumption of support. Although the government allowed an independent audit, it has failed to act on the findings. In a press briefing on 21 April the IMF repeated that “information gaps” around the debts still needed to be filled. On 25 April, the attorney general said that she had yet to find evidence of criminal activity relating to the country’s debt crisis, which is a further sign that the government is not properly investigating the scandal.

Why doesn’t the government cooperate?

The government’s lack of cooperation is politically motivated. President Filipe Nyusi is likely to be reluctant to allow investigations that could implicate senior members of the ruling Frelimo in corruption, because

this could prompt a backlash against his authority,

it could damage the party’s image ahead of the 10 October municipal elections and the 2019 general elections.

The IMF on 21 April said that the government had not even requested that it start discussions around a future financial programme, suggesting that it is not willing to submit itself to the transparency and investigation requirements that the IMF would demand.

Sovereign risk remains elevated

The suspension of budgetary support severely strained state coffers, and the government has missed a number of scheduled repayments on the EMATUM, Pro-Indicus and MAM debts. The government is attempting to negotiate a restructuring of these debts with creditors, and has proposed a number of options that would push back maturity and impose a haircut. An eventual agreement on a restructuring is likely, lowering sovereign risks. However, it is unlikely to occur until late 2018 due to complexities caused by conflicting demands of different creditor groups. In the interim, the government’s ability to meet its debt obligations will remain highly limited.

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